1997 (12) TMI 14 - SC - Income Tax

Collaboration Agreement - Computation Of Capital - Whether the Tribunal erred in holding that the amount of tax recoverable as on the first day of the computation period was not to be included in the capital employed in the assessee s industrial undertaking as till the assessment was completed, the said amount did not constitute a debt due to the assessee -held, yes - High Court was in error in holding that refund became due to the assessee only after the assessment was made and not before that

Summary

Issues:
1. Interpretation of rule 19A(3) regarding deductibility of borrowed monies and debts due.
2. Classification of technical fees paid as revenue expenditure.
3. Inclusion of advance tax paid as part of capital employed in the assessee's industrial undertaking.

Interpretation of Rule 19A(3):
The Tribunal's conclusions on most issues were deemed correct. However, the debate centered around whether borrowed monies and debts due should include only payable amounts. The judgment highlighted the importance of this interpretation in tax calculations.

Classification of Technical Fees:
The Tribunal's decision on technical fees paid to a U.S. company as revenue expenditure for specific assessment years was examined. The judgment noted that if not treated as revenue expenditure, the amount would need to be considered as capital expenditure, impacting depreciation claims by the assessee.

Inclusion of Advance Tax in Capital Employed:
The primary issue was whether advance tax paid on the first day of the assessment year should be considered part of the capital employed. The High Court initially ruled against including it, stating it could not be treated as an asset until the assessment was completed. However, the Supreme Court disagreed, citing precedents that the right to refund arose on the first day of the assessment year, making it an asset from that point onwards.

Final Decision:
The Supreme Court reversed the High Court's decision on the inclusion of advance tax in capital employed, emphasizing the right to refund from the beginning of the assessment year. Additionally, the Court supported the Tribunal's decision on the interpretation of rule 19A(3) based on a previous judgment. The appeals were disposed of with no costs awarded.